A subdued growth outlook and increased volatility for many asset classes mean investors should be cautious in 2015 We continue to have concerns about the Australian macro environment and expect muted growth and inflation in Australia. China’s rebalancing economy is a top concern for Australia, combined with uncertainties in the domestic economy. Fair valuations and…
New Zealand’s economy is well positioned compared to other major economies, and especially relative to Australia, but external factors will likely impact the local economy and markets New Zealand equities are within our fair value range, though they are getting more expensive. Investors should maintain neutral allocations and, in their foreign equity exposure, overweight European…
Investors should be prepared for increasing stress in China that will impact global markets and create opportunities There are several valid reasons why China may avoid a financial crisis or hard landing given the unique characteristics of the Chinese economy. However, investors should not be complacent. Our view is that the Chinese economy will slow…
Increasing exposure to Chinese equities today requires a long time horizon, or a willingness to be tactical amid what will be a difficult few years A case can be made that Chinese equities are attractive today based on low valuations and may rally strongly if policymakers apply additional stimulus to support the slowing economy. However,…
China’s currency recently experienced its sharpest decline since it unpegged from the US dollar nearly nine years ago. China wants a more volatile exchange rate to introduce two-way risk in the currency market, meaning a continued steady rise in its currency is not a foregone conclusion. To help offset slowing investment growth, Chinese authorities may…
In 2014, we expect a rougher road for Australia, which is currently in a transition phase that has been quite benign so far, but may not remain so.
EM equity valuations are the key driver of returns over the long term. The benefit from valuation mean reversion should be substantial, as EM equities trade at a 35% discount to DM equities and a 45% discount to U.S. equities, compared to our assumed fair value discount of 10%. We expect EM equities to remain…
Looking ahead to 2014 we are focused on several key themes, among them the evolution of global monetary policy, the likelihood of European equities exceeding diminished expectations, and the headwinds, risks, and opportunities associated with emerging markets equities.
While access to the Chinese A-share market is improving, investors should not rush in. Given that the market is still evolving, finding a skilled manager to navigate the challenges facing the A-share market is key.
Despite recent weakness, we do not believe a 1990s-style emerging markets currency crisis is brewing.